President Trump is directing the US federal government to prioritise research and development of American’s artificial intelligence capabilities.

Here are some of the main points:

Federal agencies will prioritise AI funding.

AI researchers will get greater access to federal data and computing resources.

The American workforce will be retrained to enhance the development of AI.

The US will use collaboration and investment to create the industries of the future, such as autonomous cars, robotics and advanced medicine.

This has the potential to pour federal money into the relevant firms that are on the receiving end of this largesse.

It can all be justified on national security grounds as well as sensible industrial policy.

China has made no secret of the fact[3] it wants to dominate this field as well.

US military spending accounts for the second largest item in the federal budget after Social Security.

Let’s put this together with some other recent news…

The next theatre of war is changing

This week’s Economist has a notable story[4] on a major shift happening in American defence policy.

For the last 20 years, the US fought battles in the Middle East.

Those are yesterday’s wars. The Pentagon is now addressing how it can thwart Russia and China.

US Secretary of Defence Patrick Shanahan has a new list of priorities.

And it looks like the money is going to be showering down.

Look at this quote at the end of the Economist article…

‘Mr Shanahan urges sceptics to wait for the 2020 budget, which he has called “a masterpiece”.

‘“What you’ll see in these budgets is a sizeable investment in these critical technologies and programmes, whether it’s autonomy, artificial intelligence, hypersonics, cyber.”

‘He adds, coyly, that “there’s a good portion of the budget you won’t ever see”, implying that more radical efforts may be buried in classified spending.’

Riding on the back of US defence spending can be a very profitable endeavour.

For example, huge defence stock Lockheed Martin [NYSE:LMT] is up around 340% since August 2011.

Read on for some artificial intelligence plays…

Two ideas for your watchlist

Now, I can’t guarantee that any of these firms will be on the receiving end of US government spending.

But I can assure you they, as of now at least, have a competitive advantage in artificial intelligence.

This rising tide is likely to help lift these boats.

Nvidia [NASDAQ:NVDA] was the darling of the US market over 2016 and 2017. 2018 punched it down 50%.

It looks to have stabilised. It could be building a base to start pushing higher again.

Its graphics processing units (GPUs) could still be big winners from the growth of AI.

You could also get a second tailwind from its core gaming business, which is unlikely to slow down anytime soon.

Another stock you might like to keep an eye on is Xilinx. [NASDAQ:XLNX].

The tech behind this is a little complex. Just know that it’s developing and manufacturing some vital components for the expansion of AI, and 5G for that matter. Its chart for 2019 already looks pretty.

These are not recommendations — just some ideas you might like to consider for further research.